OECD upgrades India growth forecast to 5.9%

June 24, 2009 17:46 IST

The OECD, a club of rich nations, on Wednesday raised India's growth forecast to 5.9 per cent for the current year and urged the new government to restore fiscal discipline and move ahead with disinvestment.

"With the gradual recovery of the global economy and easier financial conditions, growth is projected to gradually regain momentum," said Organisation for Economic Cooperation and Development, a group of 30 developed nations.

The OECD, in March, projected 4.3 per cent economic expansion for India in 2009.

"In India, growth is predicted to slow to 5.9 per cent in 2009 before accelerating to 7.2 per cent in 2010 (March forecast was 4.3 per cent and 5.8 per cent)," the OECD said in its latest Economic Outlook report.

Pointing out that combined fiscal deficit of the Centre and state governments would go up to 11 per cent of the GDP during 2009, the report said, adding, "The new government will face the need to restore fiscal discipline, speed up structural reform and increase sales of public sector assets.

"Any further easing in policy should be achieved through lower interest rates, rather than discretionary fiscal expansion."

The report further said the extent of the deterioration in the fiscal position prior to the slowdown has reduced the scope for 'discretionary fiscal policy action'.

The fiscal deficit of the central government, according to the interim budget data, went up to over 6 per cent during 2008-09 against the original estimate of 2.5 per cent. Taking into account expenses on off-budget items like oil and fertiliser bonds, the total fiscal deficit on the centre has been estimated at around 8 per cent.

The OECD's forecast is much more optimistic than World Bank, which on Monday projected the Indian economy to expand just 5.1 per cent.

Prime Minister Manmohan Singh had recently said that he expects the country's economy to grow by seven per cent in the current fiscal year (2009-10).

Meanwhile, the Reserve Bank of India estimates the GDP to expand at a rate of six per cent this fiscal year.

The OECD noted that the extent of the deterioration in the fiscal position prior to the slowdown has reduced the scope for "discretionary fiscal policy action".

"Indeed, the new government will face the need to restore fiscal discipline, speed up structural reform and increase sales of public sector assets. Any further easing in policy should be achieved through lower interest rates, rather than discretionary fiscal expansion," the report said.

Moreover, the OECD said that growing use of protectionist measures is a cause for concern.

According to the grouping, in 2009, falling exports are projected to result in some slowdown in domestic demand. "With the gradual recovery of the global economy and easier financial conditions, growth is projected to gradually regain momentum," the report noted.

Even as the financial turmoil turned for the worse globally late last year, India managed to record a growth rate of 6.7 per cent for the financial year ended March 31, 2009.

The grouping of rich nations has also projected the Chinese economy to expand 7.7 per cent in 2009 as against the March forecast of 6.3 per cent. In 2010, the China GDP is anticipated to grow 9.3 per cent.

The OECD nations include the US, the UK, Japan, Euro area (grouping of 16 nations which share the common currency euro), Germany and France.